Caspian Energy (CE): Mr. Jafarov, in Azerbaijan there have been held reforms, which aimed at lowering of the dependence from oil sector. How did they impact the industrial sector, where the company led by you is functioning?
Farid Jafarov, General Director of SOCAR Polymer: Nowadays, many countries try to weaken dependence of economy from oil and gas sector and Azerbaijan is not an exception in this process. The government of Azerbaijan is focused on strategy of economic diversification and introduction of reforms beyond the oil sector and basis for competitive marketing is being created as well. Our company is a resident of the Sumgait Chemical Industrial Park (SCIP) created by the Order of President of the Republic of Azerbaijan Ilham Aliyev. The purpose of creation of SCIP is provision of favorable conditions in the country for the development of competitive industrial production, based on the innovative and high technologies. As a SCIP resident, SOCAR Polymer has been provided with significant tax privileges, full infrastructure support and a “single window” system for solution of all issues related to getting of permissions. On October 25, 2015 President Ilham Aliyev attended the groundbreaking ceremony of our High Density Polyethylene Plant and emphasized that, SOCAR Polymer is one of the largest investment projects of the region and must serve as a prime example. Support and approval of the project by the government of the country is a strong incentive for further successful development of the project.
CE: Import substitution is one of the goals, set by the head of Azerbaijan state. What kind of opportunities will arise in this direction after the launch of the project, implemented by the company in Sumgait?
Farid Jafarov: Diversification of Azerbaijan economic through developing of import-substituting production is an important task assigned by the head of state for further economic development of our country. Import substitution is mainly what we aim at. Development of the petrochemical sector in Azerbaijan is a necessity and requirement of the present time. Now Azerbaijan imports polypropylene and high-density polyethylene. After completion of construction of our plants we will be able to manufacture products, not only covering local market requirement and minimizing the dependence from imported products, but also export them. 30% of the total volume, produced by SOCAR Polymer, will be enough to cover domestic demand. 70% of ready products will be exported to Turkey and Europe. We will deliver products to the international market products, meeting high quality standards. IHS company, an international marketing consultant, held researches and we assured in competitiveness of our products. Realization of SOCAR Polymer project will create a multiplicative effect for a number of important economic sectors of Azerbaijan and this way will promote the creation of a huge amount of work places. Thus, all prerequisites for a new powerful stage of economic development of the country and Sumgait in particular, have been created.
CE: At what stage is the construction of the plant? What kind of innovative technological solutions will be introduced at the company?
Farid Jafarov: A large amount of work on preparation of the construction site has been carried out by now. Operations on foundation laying and piling are underway. Construction of the lab, plant control point, warehouse and office buildings has been commenced. 20% of the work, related to project implementation has been completed so far. As far as innovative technological solutions are concerned, the fact of implementation of such project is innovative for our country in itself. The fact that the three plants (PP, HDPE, BOPP) will be managed by a crew, consisting of 500 people describes the degree of automation of the whole process. Similar old facilities used to be managed by a personnel numbering over 2000 people. LyondellBasell is our licensor on polypropylene and Ineos on polyethylene. They are leading European companies and our products will meet the highest quality standards. Advanced global inventions, ensuring practically a waste-free manufacturing cycle are used in the production. We held an Environmental and Social Impact Assessment of our facility in compliance with international standards (Golder Assosiates Company). In general, the project is based on EQUATOR Principles.
CE: What could you say about financing structure of SOCAR Polymer project?
Farid Jafarov: This is our first project, which is implemented on basis of the project financing principle within the territory of Azerbaijan. Funding makes 60/40 (60% loan capital - Gazprombank, 40% own equity - SOCAR and private investors). Borrowing structure: non-recourse financing.
CE: In his speech delivered early in 2016, President Ilham Aliyev assigned the task to increase production of export-oriented HVA products. How do you assess the prospects of the company in becoming a regional exporter?
Farid Jafarov: I believe that, our export products will be able to withstand the competition. It is what our project aims at. The statistics says that, plastics use has increased twenty-fold in the past half century and is expected to double again in the next 20 years. The cost price of petro-chemistry strongly depends on the type of processed raw material. There are two main sources. It is naphtha, which nowadays makes about 40% of total petrochemical production and gas chain (associated gases, isolated in the course of oil refining - propane, ethane and butane), which accounts for the rest 60%. It should be noted that, petro-chemistry produced out of naphtha costs 30-50% higher. Nowadays, Azerbaijan is conveying its entire petro-chemistry from cracking of naphtha to cracking of associated gases, isolated in the course of oil refining. We have a long term oriented activity.
CE: What other areas does SOCAR Polymer plan to develop?
Farid Jafarov: After we have completed the construction of our polypropylene and high density polyethylene plants in 2018, we plan to build a BOPP-film (biaxial-oriented polypropylene film) production plant. The given material is also used in production of flexible packing for food and non-food products, tags and sticky tape. It is the most popular material for a high quality flexible packing. Biaxial-oriented polypropylene film features barrier, physical-mechanical properties as well as high heat stability, firmness and flexibility.
Therefore, the film is often used in packing of goods in perfumery, cosmetic, tobacco, light, paper and food industry. Combination of unique properties of the film promotes its popularity: BOPP-film starts gradually pushing other packing materials, for instance, cellophane, paper and foil.
BOPP-films are made of polypropylene through extrusion. The plant is intended to produce BOPP-film out of polypropylene, produced by polypropylene plant of SOCAR Polymer. In this way a full production cycle will be established and the problem of raw material supply will find its solution. The production volume of this plant is scheduled at 38,000 tons per year. A strong petrochemical base created in Sumgait will make this project the most innovative and successful. Implementation of our project increases a guaranteed sale of polymer materials and makes it possible to gain an additional income by producing HVA products.
Prospective target market for BOPP-products:
• Local market ~ 3.4 thousand tonnes per year
• Kazakhstan, Turkmenistan and Uzbekistan ~ 5,000 tonnes of products per year
• Iran, Russia and Turkey – 17,000 tonnes per year
• Other markets – 1,600 tonnes per year
Thank you for the interview
Interview made by Jeyhun Bayramov and Emil Mammadov